FxWirePro: WTI traders bets on bullish inventories – Deploy vertical option combinations for long-term hedging

Crude oil prices are trading sentiments have been edgy today as market participants made bets on a bullish US crude stockpile data ahead of EIA, but the London barrel struggled to pocket gains. Crude prices are unchanged since the end of last week, despite moving in a $4/bbl range following the announcement by Ineos of the closure of the Forties Pipeline System on 11 December.

The Energy Information Administration (EIA) is scheduled to announce official inventory data at around 16:30 GMT today during US session as the consensus for a decline of about 3.8 million barrels.

After the market close on Tuesday, the American Petroleum Institute said the US crude stockpile dropped by 5.2 million barrels.

As has been typical in the recent months, we expect that the rally has enticed a lot of producer hedging as both Brent and WTI structures have shifted lower with the relatively weaker back of the curve clearly indicating producer hedging activity.

Stay long the December 2019 Brent risk reversal The Brent futures market remains in backwardation through to the end of the decade. Notwithstanding any bearish risks that will likely weigh on the market in the short-term.

Hence, we advocate adding longs in the December 2019 Brent $64/bbl call and short a $47/bbl put. Initiated late November 2017 at a net cost of +$0.15/bbl.